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Government Contractor Compliance & Regulatory Update

Thomas M. Dowd Named OFCCP’s Acting Director

Posted in OFCCP

With Patricia Shiu stepping down as Director of the Office of Federal Contractor Compliance Programs (“OFCCP”) on November 6, 2016, Thomas M. Dowd has been named OFCCP’s Acting Director, effective November 7, 2016.  He will serve until the new Trump Administration’s Secretary of Labor names a permanent director.

Mr. Dowd previously served as OFCCP’s career Deputy Director since 2011.

BREAKING: FEDERAL JUDGE ENJOINS IMPLEMENTATION OF PART OF FAIR PAY AND SAFE WORKPLACES (“BLACKLISTING”) EXECUTIVE ORDER, REGULATIONS, AND GUIDANCE

Posted in Department of Labor, Federal Acquisitions, Federal Contractors, Labor Law

On October 24, 2016, just one day prior to effective date of the Regulations and Guidance implementing the Fair Pay and Safe Workplaces Executive Order (collectively the “Rule”), Judge Marcia Crone of the U.S. District Court for the Eastern District of Texas enjoined the implementation of almost every provision of the Rule.  Specifically, Judge Crone enjoined the implementation of the Rule’s new labor law violation reporting requirements and the Rule’s arbitration agreement restrictions.  Judge Crone declined to enjoin the paycheck transparency provisions, which go into effect on January 1, 2017.

In granting the preliminary injunction, Judge Crone found that the Plaintiffs had established a likelihood of success on the merits on nearly all of their arguments.  With respect to the labor law disclosure obligations – which would require federal contractors with contracts valued at $500,000 or more to disclose various “labor law violations” – Judge Crone found that the Rule exceeded the authority provided to the Executive Branch and was preempted by other federal labor laws.  Judge Crone noted that the 14 federal labor laws covered by the Rule have their own remedial schemes, and most do not provide for debarment or disqualification of federal contractors.  Judge Crone found that the Rule’s dictates “have departed from Congress’s explicit instructions dictating how violations of the labor law statutes are to be addressed.”  Judge Crone noted that the Rule “appear[s] to conflict directly with every one of the labor laws [it] purport[s] to invoke by permitting disqualification based solely upon ‘administrative merits determinations’ that are nothing more than allegations of fault asserted by agency employees and do not constitute final agency findings of any violation at all.”  Judge Crone expressed concern about the prospect for disqualification based on such decisions because agencies issue numerous “administrative merits determinations” per year, “many of which are dismissed or significantly reduced after they are contested ….”

Judge Crone also found that the Rule’s labor law violation reporting requirements violate the First Amendment by compelling contractors to “report that they have violated one or more labor laws and to identify publicly the ‘labor law violated’ along with the case number and agency that has allegedly so found.”  Judge Crone found that this compulsion – particularly in light of the non-final nature of reportable administrative merits determinations – “compels contractors to engage in public speech on matters of considerable controversy adversely affecting their public reputations and thereby infringing on the contractors’ rights under the First Amendment.”  In addition, the Court found that the Rule’s reporting requirements violate the Due Process rights of contractors and are arbitrary and capricious.  Judge Crone found the Rule to be arbitrary and capricious because it would increase the burden and logjam of the contracting process, without any credible evidence that it provided additional protections to the government.

In addition to the reporting requirements, Judge Crone found that the Rule’s restrictions on pre-dispute arbitration agreements for Title VII claims and torts relating to sexual harassment or assault violate the Federal Arbitration Act (“FAA”).  Judge Crone found that the FAA requires the government to honor private arbitration agreements unless otherwise dictated by Congress, and that no such congressional command exists in this case.

The only portion of the Rule to survive the Court’s rulings is the paycheck transparency obligations.  These provisions require contractors to include certain information regarding the hours worked, compensation and overtime on employees’ paychecks.  Those obligations go into effect on January 1, 2017.

Government contracts can – for now – breathe a sigh of relief as the Rule will not go into effect unless and until the preliminary injunction is lifted or reversed.  We will continue to monitor developments and report them to you here.

Challenge To The Fair Pay And Safe Workplaces (“Blacklisting”) Rule To Be Heard On October 21, 2016

Posted in Department of Labor, Federal Acquisitions, Federal Contractors, Labor Law

On October 7, 2016, the first lawsuit challenging the Fair Pay and Safe Workplaces Executive Order (the “Order”) and its Final Rule and Guidance (collectively the “Rule”) was filed in the U.S. District Court for the Eastern District of Texas.  The lawsuit, seeks a preliminary injunction preventing implementation of the Rule, declaratory judgment declaring the Rule invalid, and an order vacating the Rule.  A hearing on the plaintiffs’ motion for preliminary injunction will be heard by District Judge Marcia Crone on October 21, 2016.

As a reminder, the Rule, when it goes into effect on October 25, 2016, will require federal contractors to disclose various “violations” of labor laws to the federal government.  It also imposes new paycheck transparency and arbitration restrictions on federal government contractors.  Some of our previous blog posts on the Rule can be found here and here.

We will continue to monitor developments in this case and any others that arise.

OFCCP Director Patricia Shiu To Step Down November 6, 2016

Posted in OFCCP

As reported in Bloomberg BNA, Patricia Shiu will be stepping down as Director of the Office of Federal Contractor Compliance Programs (“OFCCP”) on November 6, 2016.

Director Shiu has been the director of the OFCCP since 2009.  Throughout her tenure, Director Shiu has increased the agency’s enforcement efforts and made efforts to update and broaden the regulatory scheme applying to federal contractors.  Under her leadership, the agency instituted a number of significant changes affecting government contractors, such as the new affirmative action requirements for individuals with disabilities and protected veterans, pay transparency requirements, updated sex discrimination guidelines, and the expansion of anti-discrimination protections to sexual orientation and gender identity.  Notably, under Director Shiu’s leadership, the agency has adopted an increased focus on data analytics, increasingly concentrated on compensation.

New Interim Rule Prohibits Federal Contractors From Retaliating Against Employees Who Discuss Compensation With Colleagues

Posted in Compensation, Federal Contractors, OFCCP

On September 30, 2016, the Department of Defense, General Services Administration, and National Aeronautics and Space Administration issued an interim rule titled “Non-Retaliation for Disclosure of Compensation Information.” The interim rule implements Executive Order 13665 (the “Order”).  The Order, which President Obama signed on April 8, 2014, prohibits federal contractors from retaliating against employees who discuss their compensation.  Our prior blog posts on the Order can be found here and here.  The OFCCP published regulations implementing the Order on September 11, 2015.  Our blog post on those regulations can be found here.

Consistent with the Order and the OFCCP’s regulations, the interim rule amends existing FAR provisions to expressly prohibit contractors from taking adverse employment actions against employees or job applicants who discuss or disclose compensation information, with certain exceptions. Specifically, the new interim rule makes clear that contractors cannot “discharge or in any other manner discriminate against any employee or applicant for employment because such employee or applicant has inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant.”  The interim rule applies to solicitations and contracts that are issued on or after September 30, 2016.  Even so, the interim rule provides that “[c]ontracting officers are expected to work with their existing contractors and bilaterally modify their contracts, to the extent feasible.”

The FAR Council found that this interim rule was necessary to ensure that the requirements in the Order and OFCCP regulations would “be included in solicitations and contracts immediately and puts contractors on clear notice of legal responsibilities that are already in effect.” The FAR Council stated that it was concerned that if it followed standard rulemaking requirements, the requirements of the Order would “not be incorporated into contracts, and contractors will be put at unnecessary risk of noncompliance with the [Order] and labor rule.”

As such, the interim rule represents another step in the implementation of the Order. Contractors have already been required to comply with the requirements of the Order since January 11, 2016 when the OFCCP’s regulations implementing the Order went into effect.  The interim rule now ensures that pay transparency obligations are a term of the federal contract.

The FAR Council is accepting written comments on the interim rule through November 29, 2016. The FAR Council will consider these comments in developing the final rule.

GAO Releases Detailed Report Criticizing The OFCCP

Posted in Department of Labor, OFCCP

The Government Accountability Office (“GAO”) has released a report critical of the Office of Federal Contractor Compliance Programs (“OFCCP”) and making suggestions for improvement.  The report followed the GAO’s investigation into the OFCCP’s practices, including conducting interviews with 27 industry groups and 24 government contractors.

Some of the key findings of the report are discussed below.

Ineffective Compliance Evaluation Selection Procedures

The report is critical of the methods by which the OFCCP selects its contractors for compliance evaluations, finding its methods “cannot ensure that contractors with the highest risk of not following equal employment opportunity and affirmative action requirements will be selected.”  This is because the selection procedures are “nonrandom” and do “not produce a generalized sample of contractors for evaluations.”  As a result, the GAO found that OFCCP’s selection process does not permit the OFCCP to draw conclusions as to the level of compliance in the federal contracting community as a whole.

Over-Reliance on Voluntary Compliance

The report also criticized the OFCCP for relying on voluntary compliance of contractors, rather than establishing a mechanism to audit compliance annually.  The report focused on contractors’ completion of an Affirmative Action Plan (“AAP”).  The investigation revealed that in 2015 nearly 85% of contractors failed to submit a copy of their AAP within 30 days of receiving a scheduling letter from the OFCCP.  From this statistic, the GAO concluded that contractors are likely not complying with their obligation to complete AAPs annually, and were instead waiting until an audit to complete their AAPs.

Ineffective Compliance Evaluation Staffing

The report found that the OFCCP “assigns compliance evaluations to OFCCP district or area offices … based on the number of compliance evaluation officers located in each district and the physical address of the contractor establishment.”  The GAO concludes that this has resulted in an uneven distribution of compliance evaluations across the country, exacerbated by the fact the distribution of compliance officers is not aligned with the “national distribution of contractors.”  In other words, a contractor’s chances of being audited depend largely on the number of compliance officers and other contractors in its district.

Lack of Training Creates Inconsistencies in Audits

Based on interviews with contractors, the GAO found that there are concerns about the consistency of audit processes between district offices and even within district offices.  The report suggests that this may be due to a lack of initial and continuing training for compliance evaluation officers.

Lack of Outreach Activities

Historically, the OFCCP would assist contractors with their compliance obligations by hosting job fairs and connecting contractors with potential job candidates.  The OFCCP also used to serve as a resource for federal contractors needing compliance assistance.  The GAO notes that the number of OFCCP outreach events decreased from 1,257 in 2012 to just 204 events in 2014.  The decline is the result of a deliberate choice by the OFCCP to focus its resources on enforcement, rather than proactive outreach.  The report concludes that “without improvement in outreach efforts, OFCCP may not be able to educate employees of federal contractors about their rights and contractors about their obligations, which is critical to OFCCP’s mission.”

Contractors Find Complying With OFCCP Requirements Challenging

Not surprisingly, contractors and industry groups reported that compliance with OFCCP requirements is difficult and costly.  The GAO found that contractors often turn to third-parties, including vendors and attorneys, to keep up with the constantly changing regulations, Executive Orders, laws, and processes by which they must abide.  Contractors also expressed fear of seeking guidance from the OFCCP, fearing that such an inquiry could result in an audit.

Contractors told the GAO that OFCCP’s data collection and documentation requirements have become burdensome and overwhelming.  The result of the increased data collection obligations is a need for new forms, processes and human resources information systems.  All of this comes at a considerable expense of both time and money to contractors.  One concern echoed by 13 industry groups and four contractors interviewed by the GAO was that these costs continue to increase as the OFCCP issues new guidance and regulations.

As if the costs and burden alone where not enough, contractors and industry groups also told the GAO that the OFCCP “guidance is too general and lacks the specificity needed to understand the requirements.”  Contractors also noted that the “OFCCP guidance is sometimes open to interpretation and does not always provide a clear answer,” and would sometimes conflict with other guidance issued by the agency.  The GAO itself found the OFCCP materials to be complex.  Indeed, the GAO tested available FAQ documents and found that “the reading level required for these guidance materials ranged from that of a high school 12th-grader to that of someone with a post-graduate degree.”  Based upon this, the GAO found that “it seems likely that the information in these guidance materials may not be understandable to the range of contractors and human resource professionals attempting to comply with federal requirements.”

The GAO’s Recommendations

Based on its findings, the GAO makes six recommendations for future action to remedy the deficiencies found in its investigation.

  1. The OFCCP should change the way it develops its scheduling list for compliance evaluations “so that compliance efforts focus on those contractors with the greatest risk of not following” the law.
  2. The OFCCP should develop a “mechanism” to monitor federal contractors’ compliance with the AAP requirements “on a regular basis.”  The report goes as far as to suggest that the OFCCP could “electronically collect[] AAPs.”
  3. The OFCCP should change the way it determines which contractors to audit so that who gets audited is not based largely on geographic location.
  4. The OFCCP should “provide timely and uniform training to new staff” and continuing training opportunities to existing staff to “ensure quality and consistency of evaluations across regions and district offices.”
  1. The OFCCP should review its outreach and compliance assistance efforts and “identify options for improving information provided to federal contractors and workers to enhance their understanding” of the various legal requirements.
  2. The OFCCP should “[a]ssess existing contractor guidance for clarity,” to ensure contractors have the best information available to assist with compliance. This comes on the heels of concerns raised by many contractors that the current guidance of the agency is often less than clear and sometimes even contradictory.

Whether the GAO report will lead to any changes in OFCCP practices remains to be seen.  Of course, we will alert our readers of any developments.

EEOC Announces New EEO-1 Rule

Posted in EEOC

Last week, the U.S. Equal Employment Opportunity Commission (“EEOC”) announced that it had finalized its rule for new EEO-1 pay equity reporting requirements.  The final rule has not yet been published in the Federal Register.

According to the EEOC’s announcement, the new rule, which was first proposed in January and then revised in July, requires private employers (including federal contractors) with 100 or more employees to submit pay data with their EEO-1 reports.  Employers with fewer than 100 employees will continue their current EEO-1 practices.  The first deadline for the new reports will not be until March 31, 2018.

Although the final rule has not yet been made available, the EEOC has issued a number of publications about the new rule—specifically, a new EEO-1 form, a “Small Business Fact Sheet,” and a “Questions and Answers” document.  Based on the content of these documents, the EEOC does not appear to have made significant changes to the revised proposed rule published for comment in July.

As discussed in our prior blog post, the new EEO-1 as proposed in July would require employers with 100 or more employees who already provide demographic information regarding the gender, race and ethnicity of their employees to provide additional data about employees’ W-2 earnings and hours worked.  The EEOC has stated that it intends to use the new data to assess allegations of pay discrimination.  The EEOC also intends to “compile and publish aggregate data that will help employers in conducting their own analysis of their pay practices.”

We expect to have additional insights and recommendations once the final rule is published.

BREAKING: DOL Publishes Final Rule Requiring Federal Contractors To Provide Paid Sick Leave To Employees

Posted in Department of Labor, Labor Law

Today, the U.S. Department of Labor (“DOL”) published its final rule implementing Executive Order 13706 (the “Final Rule”), which requires certain federal contractors and subcontractors to provide paid sick leave to their employees.  Our previous blog posts on this development can be found here and here.

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Rule Governing Paid Sick Leave for Federal Contractors Completes OMB Review Process

Posted in Department of Labor, Federal Acquisitions

As reported today in Politico, the rule effectuating Executive Order 13706 (the “Order”), which requires certain federal contractors and subcontractors to provide their workers up to seven days of paid sick leave annually, has completed the Office of Management and Budget (“OMB”) review process.  Our previous blog posts on the subject can be found here and here.

When the OMB completes its review of regulations it generally means one of three things:  (1) the OMB approved the rule for final publication; (2) the OMB made revisions to the rule for review by the implementing agency prior to final publication; or (3) the OMB rejected the rule.  It is unclear what action, if any, the OMB has taken with respect to the rule.

The Order requires the U.S. Department of Labor to publish a final rule implementing the Order by September 30, 2016.  We will continue to monitor this matter for any developments and alert our readers if and when the final rule is published.

Federal Contractor Minimum Wage Increase Announced – Changes Effective January 1, 2017

Posted in Compensation, Department of Labor

Yesterday, the Department of Labor announced an increase in the minimum wage that certain federal contractors must pay to employees.  This comes as part of a planned incremental increase in the federal contractor minimum wage implemented by President Obama’s 2014 Executive Order (the “Order”).

As discussed in our previous blog post on the Order, the minimum wage requirement only applies to certain federal contracts.  Specifically, the Order only applies to:

  • procurement contracts for services or construction;
  • service contracts exceeding $2,500 covered by the Service Contract Act;
  • contracts for concessions; and
  • contracts that are both (a) entered into the with the Federal Government in connection with Federal property or lands and (b) covered by the Fair Labor Standards Act, Service Contract Act, or Davis-Bacon Act.

Beginning January 1, 2017, the minimum wage for covered federal contractors will increase to $10.20 per hour for hourly workers.  For tipped employees, the minimum wage for federal contractors will increase to $6.80 per hour.